ECU Group targets HSBC in legal motion over alleged Forex manipulation

Maria Nikolova

ECU addresses court to get information from HSBC over three large FX orders from 2006.

HSBC Holdings plc (LON:HSBA) is under fire over alleged Forex market manipulation again, this time the legal move comes from UK-based currency investment firm ECU Group.

According to a report by the Financial Times, ECU has filed an application for pre-action disclosure to London’s commercial court – in a step that usually precedes a full-scale lawsuit. The firm is seeking to force HSBC to provide information interbank dealing tickets, deal log entries and any relevant Bloomberg instant messages for three trades, each worth about $100 million, that the bank executed in 2006.

ECU back then alleged that the three “stop-loss” trades were plagued by a practice known as front-running. However, when the firm complained to HSBC, the bank said it would conduct an internal probe and eventually said it found no wrongdoing.

ECU resumes the battle after about a year ago, the US Department of Justice (DoJ) charged HSBC’s Mark Johnson and Stuart Scott with conspiracy to defraud via front-running.

“The defendants allegedly betrayed their client’s confidence, and corruptly manipulated the foreign exchange market to benefit themselves and their bank,” Assistant Attorney General Caldwell said back then.

According to the DoJ complaint, in November and December 2011, Johnson and Scott misused information provided to them by a client that hired HSBC to execute an FX transaction related to a planned sale of one of the client’s foreign subsidiaries. The transaction was going to require converting circa $3.5 billion in sales proceeds into GBP – in October 2011.

In particular, the complaint alleged that Johnson and Scott caused the $3.5 billion FX transaction to be executed in a manner that was designed to spike the price of the GBP, to the benefit of HSBC and to the detriment of their client. Overall, HSBC allegedly made profits of approximately $8 million from its execution of the FX transaction for the victim company, including profits generated from the front running conduct by Johnson and Scott.

The Financial Times report notes that the DoJ acted in the face of the fact that HSBC had engaged law firm Cleary Gottlieb to review its Forex trades, including the one over which the two traders were charged, and found no violations of its code of conduct.

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